Public Service Industries and the Capital Markets

THE ESSENTIAL DISTINCTION between public service and other industries today, lies in the fact that prices in the former are truly administered-not by management, but by a regulatory agency operating in the public interest. Other matters, such as service and financial structure, may also be subject to regulation, but basically the problems of these industries stem from outside regulation of pricing. This regulation has been such as to prevent the public service industries from taking advantage, profit-wise of a favorable trend of demand for their services where such a trend exists. As a consequence, distortion in the allocation of capital (and thus of productive resources) between the regulated and non-regulated areas is the likely result. In addition, price regulation may well operate as a deterrent to greater efficiency and better service through discouraging innovation aimed at cost reduction, or service improvement in the regulated areas.